Those who are self-employed are wise to make strong choices on how best to save and protect their money in planning for retirement, experts say.
Here are the four top retirement plans for those who are self-employed.
Forbes recommended a SEP-IRA as its top choice for self-employed
people. SEP stands for simplified employee pension. This IRA is a simple way to put money aside, pre-tax, as savings, the magazine noted. Under this IRA, investors can contribute as much as 25 percent of their income — up to $49,000 annually.
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2. SIMPLE IRA
This plan is a simple incentive-match plan for employees at small businesses as well as the self-employed, Forbes noted. "If you have a few employees, say, less than 10, who make more than $5,000, but far from six figures, and want to offer a plan for them as a perk, this is probably the one for you. It was designed for firms with no more than 100 employees," Forbes wrote.
3. Solo 401(k)
Small business owners or those who are independently employed may contribute up to $16,500, Forbes reported. "With a solo 401(k), as an employee, you can stash away as much as $16,500. As the employer, you can contribute another 25 percent of compensation, up to a ceiling of $49,000 including your employee contribution. If you’re 50 or older, you can toss in another $5,500 extra."
4. Keogh plans
There are two types of Keogh plans — defined contribution and defined benefit. They are popular for those who are self-employed and earn large incomes, CNN noted
. Under a defined benefit plan, you must fund it yourself. Under a defined contribution plan, you have two options — profit-sharing and money-purchase, CNN said.
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"The profit-sharing version of the Keogh is most like the SEP; there's a ceiling on contributions — 25 percent of compensation — up to $49,000, and below that limit you can put in whatever you can spare. You also can change your contribution each year. With the money-purchase plan, you pick a percentage of income you'll contribute every year, and stick with it," CNN wrote of the differences.
The IRS posts contribution limits
for each plan every year.
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